In 2005, financial services companies put their shoulders to the transformation wheel with arguably greater vigour than has yet been seen since the financial sector charter (FSC) - the first voluntary black economic empowerment (BEE) charter - came into effect in January 2004. The result was that all of SA's major financial institutions are well on their way to achieving, or have exceeded, minimum targets set for 2010.
The scale of the BEE challenge is daunting. To meet targets set out in the FSC, companies in the sector must achieve a minimum 25% black ownership by 2010 with a minimum 10% as direct ownership. For listed companies alone, the latter will have entailed transferring ownership of equity worth about R84bn.
The most significant of the BEE deals in 2005 was that of the Old Mutual (OM) SA stable, which included Nedbank and short-term insurer Mutual & Federal (M&F). The deal was notable in a number of respects, including being the largest yet in the sector, with a total value of R7,2bn.
By a small margin, this eclipsed the R6,8bn deal between bancassurance group FirstRand and four empowerment groups (Kagiso Trust, Mineworkers Investment Trust, WDB Trust and the FirstRand Empowerment Foundation) and staff in late 2004.
OM's deal was almost a third bigger than the R5,6bn BEE deal concluded between the Standard Bank/Liberty Life group and a consortium headed by the Shanduka Group and Safika Holdings in July 2004.
OM sought a higher BEE component than deals concluded by many other heavyweights in the sector. In the OM deal the total new BEE direct shareholding was targeted at 13,5% of the value of OM SA (R3,5bn), 11,5% of Nedbank (R3bn) and 11% of M&F (R700m). It already had black shareholders with an economic interest of about 2%.
By comparison the deals concluded by FirstRand and the Standard Bank/Liberty Life group shifted only the minimum 10% of their total equity capital to black ownership. Similarly, Sanlam's deal with BEE consortium Ubuntu-Botho in 2003 and Absa's deal with the Batho Bonke Capital consortium both involved the transfer of equity stakes of about 10%.
OM's deal consolidates the trend towards encouraging greater staff participation. In a similar vein to the FirstRand and Standard Bank/Liberty deals, where 35% and 40%, respectively, of share allocations went to black staff, the OM group's black staff and management became beneficial owners of 39% of new shares issued.
A number of earlier deals came in for criticism for not promoting broad-based empowerment. Among these were Absa's deal with Batho Bonke, which was led by Tokyo Sexwale and included only 12 other players. As a token gesture, black Absa employees were offered a 1% interest by way of a share ownership trust.
In August 2005, Nedbank launched the Eyethu Ownership Plan for retail clients, where those buying Nedbank shares paid the market price and are subject to a three-year lock-up period during which their capital invested is guaranteed. Having complied with Eyethu's rules they will at the end of the period be entitled to one free "bonus" share for every three held.
The final outcome of Eyethu has not been announced but if fully successful it will result in existing black retail clients owning 2,17% of the Nedbank group.
